Tin Foo Investment Co Ltd v. Previgor Development Ltd and Another

HCA 1675/2014

[2018] HKCFI 1106

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1675 OF 2014

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DECISION ON COSTS

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Introduction

1.The plaintiff in this case sought various relief against the defendants arising out of water seepage into the plaintiff’s property.

2.After trial, I gave judgment dated 11 January 2019, to the effect that the 1st defendant had acted in breach of the DMC from 1 August 2013 to January 2015; and both defendants had committed nuisance and were negligent from 1 August 2013 to January 2015. However, I was not satisfied that substantial pecuniary damage had been proved, and hence I awarded nominal damages of $10 to the plaintiff against both defendants.

3.1 August 2013 was the date on which an expert instructed by the defendants inspected the two relevant properties.  January 2015 was the date when rectification works were completed, and the water seepage problem was solved.

4.I further gave directions for parties to file written submissions on costs. This has been done, and I now give my decision on costs.

5.I am informed through the written submissions that the defendants had made a sanctioned payment of $1000 in settlement of the whole claim on 22 April 2016. Under the rules, that sanctioned payment was open for acceptance without leave of the court until 20 May 2016.  It was never accepted.

6.The defendants accept that (i) the plaintiff could not be blamed for initiating the present proceedings against the defendants back in August 2014 (the writ was issued on 26 August 2014); and (ii) had the rectification works not been carried out, it would be likely that the court would have granted the injunctions sought by the plaintiff.

7.As I understand it, the defendants' position is also that the plaintiff likewise could not be blamed for prosecuting the present proceedings up to January 2015.

8.Accordingly, the defendants accept that they should be liable for costs to the plaintiff on a party and party basis from the date of the writ, i.e. 26 August 2014 to “January 2015”. From the orders suggested in paragraph 26 of the defendants’ first written submissions, I understand that they accept liability to pay such party and party costs up to 31 January 2015.

9.I think it would be useful for me to first explain my views on the proper principles governing the following two questions:

(1)   The cost consequences where nominal damages are awarded.

(2)   The impact, if any, of the sanctioned payment mentioned above.

10.On the first question:

(1)   As explained in Hong Kong Civil Procedure 2019 §62/3/4, “where a plaintiff is successful on the issue of liability but recovers nominal damages only, the normal order for costs is in the defendant's favour”.

(2)   It is further stated in Hong Kong Civil Procedure 2019 §62/2/6 that “where plaintiffs in an action for breach of contract recover only minimal damages and do not [establish] anything which is of the least value to them, they are not to be regarded as successful plaintiffs, and the court will normally treat the defendants as having succeeded and award the defendants the costs of the action, whether or not the defendants have at any stage made a payment into court of nominal damages.”

(3)   Obviously these statements only set out the general position, and each case has to be decided on its own facts.  But I am satisfied that these statements correctly set out the general position, and hence the starting point is that the defendants in this case are the successful party. 

11.On the second matter:

(1)   Where a plaintiff fails to obtain a judgment better than a sanctioned payment, Order 22 rule 23 empowers the court to order costs (i) on an indemnity basis, and (ii) at an enhanced rate of interest of not more than 10% above judgment rate, in respect of a period after the date on which the plaintiff could have accepted the sanctioned payment without leave.

(2)   Order 22 rule 23(5) further provides that “the court shall make the above orders [including the ones mentioned in paragraph 11(1) above] unless he considers it unjust to do so”.  Rule 23(6) then lists a number of factors which the court shall take into account in considering whether it is unjust to make the orders.

(3)   On the rate of enhanced interests on costs, the defendants have referred me to Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 (Lam J, as he then was), and CLP Power Hong Kong Limited v Kong Chung Sang [2012] 5 HKC 299.  The plaintiff has made no submission on the rate of enhanced interests on costs. 

(4)   The defendants say that on the strength of the aforesaid cases, they are entitled to an enhanced interest rate of 9%.  My reading of these cases is that the court adopted a rate of 4.5% from 28 days after the making of the sanctioned offer, with interest running on all items of costs from that date. 

(5)   The idea is that the enhanced interest rate on costs is not to be penal, but to account for the fact that the party recovering costs on an indemnity basis should be compensated for the time value of his money. 4% above prime rate, or 9%, would be a generous reflection for costs of money. In a situation (like in the present case) where the court has no information about the precise date when each item of costs was incurred, a fair thing to do is to adopt half of that rate (i.e. 4.5%) on all costs incurred after 28 days after the making of the sanctioned offer or payment (in this case 20 May 2016), with interest running from that date (i.e. 20 May 2016) on all items.

(6)   Given that the plaintiff has made no submission on the rate of interest on costs, I am content to adopt that approach in the present case.

12.Applying the principles outlined above, and for the reasons I will endeavour to state in more detail below, I will order that:

(1)   The defendants do pay the plaintiff's costs on a party and party basis at District Court scale from 26 August 2014 to 31 January 2015.

(2)   The plaintiff do pay 50% of the defendants' costs on a party and party basis at High Court scale from 1 February 2015 to 20 May 2016.

(3)   The plaintiffs do pay 50% of the defendants' costs on an indemnity basis at High Court scale from 21 May 2016 to 11 January 2019 (i.e. date of judgment).

(4)   The plaintiffs do pay interest at 4.5% per annum on all items of costs mentioned in paragraph 12(3) above, and such interest shall run from 21 May 2016 to the date of this decision on all such items.

(5)   Interest shall run at judgment rate on the costs mentioned in paragraph 12(3) above from the date of this decision until the date of payment. This is simply to follow the usual rule that judgment rate should apply to monies ordered to be paid by a court order from the date of the relevant judgment until the date of payment.

(6)   There be no order as to costs in respect of the submissions as to costs.  This is to reflect that both parties to have succeeded only to a limited extent on their submissions on costs.

(7)   There be no certificate for two counsel.  The defendants (the party with two counsel) have reasonably not sought such certificate.

13.The plaintiff argued that the defendants should have been liable on a High Court scale, because of the high rental value of the property, and the plaintiff had a reasonable and genuine belief that the rental loss could exceed $1 million. I am unable to accept that argument, given that ultimately the plaintiff has not been able to show any substantial damage for any period.

14.Nor do I think there is any merit in the argument that the defendants had never suggested a transfer to a District Court. The defendants have always taken issue on damages and I do not think it right that a defendant who is ultimately successful in reducing the damages claimed to below the jurisdictional limit of the District Court has a further duty to take active steps to transfer the proceedings to the District Court.

15.The plaintiff has invited me to reflect in the costs order the degree to which they have been successful, in particular on the question of liability.

16.I agree that it is right to do so:

(1)   I have been referred to On Your Mart Co Ltd v Cosway (HK) Limited (HCA 1060/2012, 11 November 2015).  In that case, Recorder Linda Chan SC referred to the decision of the Court of Appeal in Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679 §§100-102 (Kwan JA), where it was said that (i) although the principles of Re Elgindata Ltd (No 2) [1992] 1 WLR 1207, 1214A-C continue to apply after the Civil Justice Reform, the approach these days is to regard the proposition that costs should follow the event not as a general rule but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts on a particular case; and (ii) the rationale of this shift in approach is that the mechanistic adoption of costs follow the event principle may result in parties incurring unnecessary costs in civil litigation.

(2)   Indeed, even in the passage in Elgindata referred to above, Nourse LJ has said that although the general rule of costs follow the event does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs.  And where the successful party raises issues or makes allegations improperly or unreasonably, the court may deprive him of his costs, or even order him to pay the whole or a party of the unsuccessful party’s costs.

(3)   It is also said in Hung Fung §104 and On Your Mart §6 that the credibility of the witnesses and the conduct of the parties in regard to the case they allege and seek to prove is a relevant matter for a judge to take into account in dealing with costs, as he has seen and heard the witnesses and attended to the whole course of proceedings, and, therefore, is in the best position to decide one has behaved so badly in the matter as to justify that party to be deprived of costs.

(4)   For the reasons explained in §62 of my Judgment, I regard that the defendants had acted unreasonably after 1 August 2013.  I also regard the defendants’ evidence on why there was no follow up on the defendants’ expert’s inspection highly unsatisfactory (see §17 of my Judgment). Likewise I think the defendants did not act reasonably upon the plaintiff’s repeated attempts to follow up on the issue. 

(5)   I am of the view that the defendants have acted improperly and unreasonably in their contest of liability.  Significant time and effort have been expended (even at trial) to determine the question of liability and it is right that that be reflected in the costs order.

(6)   Accordingly, on a rough and ready basis, I will only award 50% of their costs to the defendants in respect of periods where they should get costs.

17.For the avoidance of doubt, I regard the defendants as the successful party in this litigation, and I reject the submission that the plaintiff has achieved something of value in the award of nominal damages.  The rectification works (which successful fixed the water leakage) had long been completed by the time of the sanctioned payment and the trial.  This judgment will also only have very limited value in future water leakage cases involving the plaintiff and the defendants given that the cause of the next water seepage may be totally different. 

18.The unpursued claim for repairing costs also adds nothing, for the simple reason that it is unpursued. 

19.As regards the relevance of the sanctioned payment, the plaintiff has taken a highly technical point that the sanctioned payment should be regarded as a species of sanctioned offer.  It follows (as the argument goes) that Order 22 rule 5(7) applies, such that there should be some other letter stating the matters listed in rule 5(7).  I reject this argument for the simple reason that a sanctioned payment is not a sanctioned offer, and they are plainly governed by different rules.  The sanctioned payment in the present case was accompanied by a notice in accordance with Form No 23.  I see nothing wrong with that.

20.There is also an argument that the plaintiff has done better than the sanctioned payment because there is a judgment on liability in its favour.  I am unable to accept this argument.  I believe that in a claim for monetary damages, if the plaintiff has not been able to obtain a monetary judgment more than the sanctioned payment, and has not been able to obtain any order of real value (as I have concluded above), the plaintiff fails to obtain judgment better than the sanctioned payment.

21.Accordingly, for the above reasons, I will make an order in terms of paragraph 12 above.

Mr Paul Wong, instructed by Hon & Co, for the plaintiff

Mr Philip Chan and Mr Andy Mak, instructed by Lo & Lo, for the 1^st and 2^nd defendants